BellSouth, SBC plan appeal of WorldCom payment order

BellSouth in the next two weeks will file an appeal of an order handed down yesterday by United States Bankruptcy Judge Arthur J. Gonzalez that approved WorldCom’s plan to establish adequate assurance of payment to utility companies providing service to the carrier.

According to published reports, SBC Communications also will appeal the order. SBC officials did not return calls seeking comment.

The determination by Judge Gonzalez that ILECs are utilities and not “critical vendors,” means that WorldCom won’t be required to pay incumbent carriers immediately for services rendered. Moreover, the order could prevent the Bell companies and other incumbents from pulling the plug on interconnection services it provides to the bankrupt interexchange carrier.

Section 366 of the Bankruptcy Code prevents utilities from discontinuing service to a debtor for 20 days after a Chapter 11 filing. After this period, a utility could cut off service if the debtor does not provide adequate assurance that it will meet its post-filing financial obligations.

However, WorldCom argued in its motion that it would have to cease operations should the Bell companies and other incumbents cut off service. This in turn would have a “catastrophic effect” on national and international voice and data transmissions. WorldCom further argued that of the $760 million it owes incumbents each month – $750 million of that is generated by interconnection traffic – about $455 million is offset by fees owed WorldCom by ILECs and CLECs for long-distance services, reciprocal and intercarrier compensation and billing arrangements.

In addition, WorldCom argued that “adequate assurance” is not synonymous with “adequate protection.” Specifically, WorldCom said the court is not required to provide utilities a guarantee that they will get paid, but rather, determine that the utility is not subject to an unreasonable risk that they will not get paid for services rendered after the bankruptcy filing.

However, as part of its plan to provide adequate assurance to utilities providing it with service, WorldCom asked for approval of post-petition financing in the amount of $750 million, on an interim basis, an amount that could go as high as $2 billion. WorldCom said this amount would be sufficient to meet its post-filing financial obligations to the utilities.

BellSouth was not pleased by the prospect of “getting paid several months down the road,” with no recourse to shut off service, said a spokesman for the carrier. In its appeal, BellSouth will ask that WorldCom be required to make a cash deposit against future services or pre-pay for services on a weekly basis.

“We’re saying, ‘Look, we’re not providing service unless we get paid,’” the spokesman said.

Verizon Communications was less concerned about the order, believing that it is adequately protected by Section 366 of the Bankruptcy Code. “We don’t really see this the same way as BellSouth,” said a Verizon spokesman.

Reporter’s Notes

The United States Department of Justice (DOJ) has told the FCC that it is not able to support Qwest Communications’ five-state application – covering Colorado, Idaho, Nebraska, Iowa and North Dakota – to provide interLATA service under Section 271 of the Telecom Act. The DOJ said the application as filed does not sufficiently demonstrate that Qwest is adequately providing CLECs with electronically auditable wholesale bills for its unbundled network element platform (UNE-P). It also said the application does not adequately address issues concerning Qwest’s manual processing of wholesale orders. The DOJ also expressed concern regarding allegations that Qwest entered into “secret” interconnection agreements with certain CLECs, allegations that “are serious and deserve the commission’s careful attention.” However, the DOJ acknowledged that Qwest has submitted “substantial additional evidence” which, if “sufficiently meaningful and reliable,” would support approval of the application. Qwest did not return calls seeking comment.

The FCC has released its newest statistics on local telephone competition and the deployment of high-speed data services. According to the commission, end-user customers obtained local telephone service over 173 million ILEC switched access lines, 20 million CLEC lines and 122 million mobile wireless subscriptions, as of December 31, 2001. Total CLEC switched access lines increased by 14% in the second half of last year. High-speed lines connecting homes and businesses to the Internet increased by 33% in the second half of last year, from 9.6 million to 12.8 million. That was slightly slower than the 36% growth rate achieved in the first half of 2001. Of the 12.8 million lines, 11 million served residential or small business customers, a 41% increase over the 7.8 million lines reported six months earlier.